Best Practices/Advisories

Best Practices/Advisories

GFOA Best Practices identify specific policies and procedures that contribute to improved government management. They aim to promote and facilitate positive change or recognize excellence rather than merely to codify current accepted practice. GFOA has emphasized that these practices be proactive steps that a government should be taking. Best practices are applicable to all governments (both large and small). Best practices are approved by the GFOA executive board and represent the official position of the organization.

GFOA Advisories identify specific policies and procedures necessary to minimize a government’s exposure to potential loss in connection with its financial management activities. For many advisories, GFOA will be providing specific recommendations on how to avoid risk or loss, either proactively or retroactively, in response to current events or trends. Advisories are approved by the GFOA executive board and represent the official position of the organization.

Best Practices by Topic

GFOA recommends that state and local governments adopt comprehensive written debt management policies. These policies should reflect local, state, and federal laws and regulations. GFOA also has available two checklists to provide guidance.

GFOA recommends that governments develop and adopt capital planning policies that take into account their unique organizational characteristics including the services they provide, how they are structured, and their external environment.

GFOA recommends jurisdictions using or considering the use of economic development incentives create a policy on the appropriate parameters for use of such incentives and that the finance officer play an active role in the creation of the policy.

At a minimum, an economic development policy should contain the following elements:

GFOA recommends that governments develop a formal grants policy. Further, GFOA recommends that such a policy address steps to take prior to applying for or accepting grants, and that the policy at minimum contain the following components:

GFOA recommends that state and local entities establish a formal pension investment policy that is approved by the governing board or trustee(s) of the pension plan. A pension investment policy should be viewed as a long-term governing document.

GFOA recommends that governments establish a formal policy on the level of unrestricted fund balance that should be maintained in the general fund for GAAP and budgetary purposes.3 Such a guideline should be set by the appropriate policy body and articulate a framework and process for h

GFOA makes the following recommendations regarding auditor association with audited financial statements included in offering statements and auditor association with audited financial statements posted on a governments website:

Every government should document its accounting policies and procedures. Traditionally, such documentation has taken the form of an accounting policies and procedures manual. Thanks to advances in technology, even more effective methods are now also available for this purpose.

GFOA recommends that every state and local government periodically inventory its tangible capital assets so that all such assets are accounted for, at least on a test basis, no less often than once every five years.

GFOA recommends that governments consider the following factors in the process of deciding whether to use depreciation accounting or the modified approach for a given network or subsystem of infrastructure assets:

The Government Finance Officers Association (GFOA) encourages governments to allocate their indirect costs. There are a number of issues a government needs to address in connection with indirect cost allocation.

GFOA urges state and local government financial managers to take all necessary steps to ensure that they will be able to collect and maintain adequate documentation on disaster-related costs to support maximum reimbursement from all levels of government that offer such assistance, including the following:

GFOA recommends that every government formally establish written policies and procedures for minimizing disruptions resulting from failures in computers or other advanced technologies following a disaster. These written policies and procedures should be evaluated annually and updated periodically, no less than once every three years.

The Government Finance Officers Association (GFOA) recommends that governments establish processes to promote awareness throughout the government that grants normally come with significant requirements.

GFOA recommends that every government establish policies and procedures to encourage and facilitate the reporting of fraud or abuse and questionable accounting or auditing practices. At a minimum, a government should do all of the following:

GFOA recommends that governments take into account the following considerations in crafting a strategy3 for minimizing any potential negative effect resulting from the communication of internal control related matters identified in an audit.

GFOA recommends that every state or local government that uses fund accounting3 establish clear criteria for determining whether a given fund in its accounting system should be treated as a fund for purposes of external financial reporting.

GFOA recommends that MD&A be presented in conjunction with departmental reports, individual fund reports, and similar reports.2 When MD&A are presented voluntarily, GFOA recommends that their contents be closely modeled on the requirements for MD&A set forth in GASB Statement No.

GFOA recommends that governments subject to SEC Rule 15c2-12 consider using the CAFR as their disclosure document for providing information useful to existing and potential investors in the secondary market and meeting their obligation to provide annual disclosure for the secondary market, as required by Rule 15c2-12.

GFOA believes that assets, liabilities, income and expenses related to securities lending transactions should be reported in the financial statements in the manner that best reflects the true nature of these transactions, consistent with the provisions of GASB Statement No. 28.

GFOA recommends that governments consider the following guidelines when incorporating information on the capital budget within the operating budget document. Presentation of the capital section should include a summary of the multi-year capital plan as well as detailed information related to the budget.

GFOA recommends that all governmental entities use some form of strategic planning to provide a long-term perspective for service delivery and budgeting, thus establishing logical links between authorized spending and broad organizational goals.

GFOA encourages every government to consider using the inflation indices that work best as a predictor. This may mean the use of different indices depending on the expenditure category. The government should define the purpose for using an inflationary index and then select the appropriate index.

The GFOA recommends that governments at all levels forecast major revenues and expenditures. The forecast should extend several years into the future. The forecast, along with its underlying assumptions and methodology, should be clearly stated and made available to stakeholders in the budget process.

GFOA recommends that local governments adopt a target amount of working capital to maintain in each of their enterprise funds. Ideally, targets would be formally described in a financial policy and/or financial plan.

GFOA recommends that governments establish a formal policy on the level of unrestricted fund balance that should be maintained in the general fund for GAAP and budgetary purposes.3 Such a guideline should be set by the appropriate policy body and articulate a framework and process for h

GFOA recommends that governments consider the following guidelines when incorporating information on the capital budget within the operating budget document. Presentation of the capital section should include a summary of the multi-year capital plan as well as detailed information related to the budget.

GFOA encourages every government to consider forecasting procedures that would result in more accurate expenditure projections, especially as they relate to personnel. The items shown below provide governments with the areas in which they should consider adopting practices to more effectively budget salary and wages.

GFOA recommends that program and service performance measures be developed and used as an important component of long term strategic planning and decision making which should be linked to governmental budgeting. Performance measures should:

GFOA recommends that governments incorporate public participation efforts in planning, budgeting, and performance management results processes. GFOA also recommends that to ensure effective and well implemented public participation processes, governments include the following considerations in designing their efforts:

The purpose of public-sector performance management (shown throughout the commissions report) is to provide a systematic approach to managing performance through concepts, practices and processes that align governments efforts to achieve the best possible results for the public within available resources. Performance management emphasizes the

Governments need to closely monitor health-care costs and choose approaches that make use of the jurisdictions purchasing power, share costs appropriately, encourage good consumer behavior, promote health, and support governmental jurisdictions ability to hire and retain a highly qualified and motivated workforce.

GFOA recommends that government officials ensure that the costs of DB pensions and OPEB are properly measured and reported. Sustainability requires governments that sponsor or participate in DB pension plans, or that offer OPEB, to contribute the full amount of their actuarially determined contribution (ADC) each year.

GFOA recommends that governments consider the following guidelines when incorporating information on the capital budget within the operating budget document. Presentation of the capital section should include a summary of the multi-year capital plan as well as detailed information related to the budget.

The Government Finance Officers Association (GFOA) supports the use of charges and fees as a method of financing governmental goods and services. Concerning the charge and fee setting process, GFOA makes the following recommendations that governments should:

GFOA recommends that governments consider the following guidelines when incorporating information on the capital budget within the operating budget document. Presentation of the capital section should include a summary of the multi-year capital plan as well as detailed information related to the budget.

GFOA recommends that the budget document clearly define the basis of accounting used for budgetary purposes. If the budgetary basis of accounting and the GAAP basis of accounting are the same, this fact should be clearly stated.

GFOA recommends that governments prepare and adopt a formal capital budget as part of their annual or biennial budget process. The capital budget should be directly linked to the multi-year capital improvement plan.

GFOA recommends that governments ensure that their entity-wide budget totals reflect real economic activity and that material double-counting does not occur. To safeguard against double counting, governments should observe the following factors:

GFOA recommends that governments consider the following guidelines when incorporating information on the capital budget within the operating budget document. Presentation of the capital section should include a summary of the multi-year capital plan as well as detailed information related to the budget.

GFOA recommends that local, state and provincial governments establish a system for assessing their assets and then appropriately plan and budget for any capital maintenance and replacement needs. This includes:

GFOA urges state and local government officials to extend the involvement of the finance director through all phases of asset management. In working to develop sustainable and high performing asset management plans, finance officers should be involved by understanding and providing information to support decisions on:

GFOA recommends that governments consider the following guidelines when incorporating information on the capital budget within the operating budget document. Presentation of the capital section should include a summary of the multi-year capital plan as well as detailed information related to the budget.

GFOA recommends that local, state and provincial governments establish a system for assessing their assets and then appropriately plan and budget for any capital maintenance and replacement needs. This includes:

GFOA recommends that governments develop and adopt capital planning policies that take into account their unique organizational characteristics including the services they provide, how they are structured, and their external environment.

GFOA recommends that finance officers evaluate both the financial and non financial impacts of a project including environmentally-responsible measures that impact the jurisdiction in the long term as well as the local, regional, and global environment, changes to resource use and efficiency, and other areas that impact quality of life for the p

GFOA recommends that finance officers take an organizational-wide approach to using technology for capital program management. Use of appropriate technology that can be used by key participants in the process -- in finance, engineering, operations, overall management, and other areas can enhance collaboration and improve management of the capit

The Government Finance Officers Association recommends that organizations develop a communications plan for public participation focused on explaining capital needs, options, and strategies and facilitating feedback in advance of any major capital program.

GFOA recommends that governments discuss and quantify the operating impact of capital projects in the budget document. The impacts should be identified on an individual project basis, but may be summarized. The following steps should be taken to ensure that operating impacts are identified.

GFOA recommends jurisdictions using or considering the use of economic development incentives create a policy on the appropriate parameters for use of such incentives and that the finance officer play an active role in the creation of the policy.

At a minimum, an economic development policy should contain the following elements:

GFOA recommends that the finance officer or budget officer lead or be a key participant in the analysis of the economic and fiscal impacts, as well as the risks and uncertainties, associated with proposed economic development plans, strategies or individual projects. In addition to roles in project leadership and management, roles that should b

The Government Finance Officers Association (GFOA) recommends that state, provincial and local jurisdictions monitor economic development projects and program performance to ensure objectives established in an economic development policy are accomplished. The finance officer plays a central, functional role in monitoring economic development pr

GFOA recommends that governments consider the following guidelines when incorporating information on the capital budget within the operating budget document. Presentation of the capital section should include a summary of the multi-year capital plan as well as detailed information related to the budget.

Organizations, and especially the finance officer, must understand what is at stake and make informed, strategic decisions on whether or not to pursue P3 opportunities. Finance officers should be involved throughout the process of a public entity’s consideration of potential P3 opportunities.

GFOA recommends that state and local governments adopt comprehensive written debt management policies. These policies should reflect local, state, and federal laws and regulations. GFOA also has available two checklists to provide guidance.

GFOA recommends that issuers minimize their involvement in the selection of underwriters counsel. The GFOA believes that issuers have a legitimate but limited role in the engagement of underwriters counsel.

The Government Finance Officers Association (GFOA) recommends that issuers hire a municipal advisor prior to the undertaking of a debt financing unless the issuer has sufficient in-house expertise and access to current bond market information.

The Government Finance Officers Association (GFOA) recommends that, unless the issuer has sufficient in-house expertise and access to market information, it should hire an outside municipal advisor prior to undertaking a negotiated debt financing in order to assist the government with evaluating proposals from underwriters, selecting the underwr

GFOA recommends that state and local governments carefully consider whether issuing taxable debt is the best financing option for their proposed project, and develop a thorough understanding of the differences between the tax-exempt and taxable markets before proceeding with a planned sale. Each issuer and its financial advisor should conduct a

GFOA recommends that governments contemplating the sale or securitization of property tax liens undertake a careful analysis of benefits and risks both in the current fiscal year and over the long-term. When evaluating the sale or securitization of tax liens, governments should:

GFOA advises governments who plan to issue variable rate debt to exercise caution and carefully evaluate their objectives and consider how this debt and the various risks associated with it will be managed over the long term.

GFOA recommends that finance officers be aware of the parties likely and necessary to be involved in the transactions and be prepared to select these parties in a manner that ensures that needed services are obtained at a fair and reasonable cost. Additionally, an issuer should carefully review all invoices to ensure that an expense is not billed to multiple parties.

GFOA recommends that state and local government issuers establish at the beginning of the bond negotiation process what expenses will be directly paid by the issuer or as part of the underwriter spread. This should occur through discussions between the issuer (together with its financial advisor) and the underwriter. Along with establishing w

GFOA recommends that state and local governments carefully consider whether issuing taxable debt is the best financing option for their proposed project, and develop a thorough understanding of the differences between the tax-exempt and taxable markets before proceeding with a planned sale. Each issuer and its financial advisor should conduct a

GFOA recommends that state and local government issuers strive for the best balance between the yield for each maturity and the takedown to achieve the llowest overall cost of financing. The following actions by issuers are recommended to improve the pricing process:

When state and local laws do not prescribe the method of sale of municipal bonds, the Government Finance Officers Association (GFOA) recommends that issuers select a method of sale based on a thorough analysis of the relevant rating, security, structure and other factors pertaining to the proposed bond issue.

GFOA recommends that issuers not include underwriter disclaimer language in official statements. GFOA further recommends that in the preparation of official statements, issuers should undertake an affirmative review to ensure that any such disclaimer language has not been included.

GFOA recommends that governmental bond issuers consider developing an investor relations program. The centerpiece of such a program is a commitment to provide full and comprehensive disclosure of annual financial, operating, and other significant information in a timely manner consistent with federal, state and local laws.

GFOA recommends that finance officers responsible for their government’s debt management program adopt a thorough continuing disclosure policy and adhere to the following best practices. Issuers should determine how to apply best practices in the manner that is relevant and most practical for their entity.

GFOA recommends that bond issuers use technology – including both their own websites and additional features of the EMMA platform – to disseminate information to the municipal securities market regarding their debt, financial condition and other related information.

The Government Finance Officers Association (GFOA) recommends that issuers include guidelines in their debt management policies that address preservation of future refunding flexibility when issuing any debt, formal refunding objectives, and monitoring of refunding opportunities on outstanding debt.

GFOA recommends that governments that issued BABs or other direct subsidy bonds, be acutely aware of their ongoing responsibilities associated with these bonds and be cognizant of Internal Revenue Service (IRS) actions related thereto. Additionally, if Congress reinstates direct subsidy bond programs, the GFOA advises governments to exercise ca

The Government Finance Officers Association (GFOA) recommends that state and local governments develop an understanding of the risks inherent in investing bond proceeds and incorporate steps in their investment strategy for each fund to minimize these risks.

GFOA recommends that governments systematically identify and evaluate the major factors in considering a managed competition option. Service level, cost, efficiency, effectiveness, quality, customer service, and the ability to monitor the service providers work should be essential components of any managed competition decision.

GFOA recommends that governments develop, test, and maintain a plan to continue their basic business operations during and immediately after disruptive events. Governments must be able to anticipate problems, detect threats and determine effective protective actions to enable them to continue to function.

GFOA recommends that governments develop a comprehensive risk management program that identifies, reduces or minimizes risk to its property, interests, and employees. Costs and consequences of harmful or damaging incidents arising from those risks should be contained.

GFOA recognizes the importance of disaster preparedness and management, and recommends that local jurisdictions incorporate resiliency into the capital planning process to produce a sustainable community and mitigate the effects of disasters.

Ways of incorporating resiliency in the capital planning process include:

GFOA recommends that governments incorporate public participation efforts in planning, budgeting, and performance management results processes. GFOA also recommends that to ensure effective and well implemented public participation processes, governments include the following considerations in designing their efforts:

The Government Finance Officers Association recommends that organizations develop a communications plan for public participation focused on explaining capital needs, options, and strategies and facilitating feedback in advance of any major capital program.

GFOA recommends that finance officers take an active role in their governments efforts to think and act sustainably. Below are a number of tasks that the finance officer can undertake to support sustainability.

GFOA urges state and local government officials to extend the involvement of the finance director through all phases of asset management. In working to develop sustainable and high performing asset management plans, finance officers should be involved by understanding and providing information to support decisions on:

GFOA recommends that the finance officer or budget officer lead or be a key participant in the analysis of the economic and fiscal impacts, as well as the risks and uncertainties, associated with proposed economic development plans, strategies or individual projects. In addition to roles in project leadership and management, roles that should b

The Government Finance Officers Association (GFOA) recommends that issuers hire a municipal advisor prior to the undertaking of a debt financing unless the issuer has sufficient in-house expertise and access to current bond market information.

The Government Finance Officers Association (GFOA) recommends that, unless the issuer has sufficient in-house expertise and access to market information, it should hire an outside municipal advisor prior to undertaking a negotiated debt financing in order to assist the government with evaluating proposals from underwriters, selecting the underwr

GFOA recommends that state and local governments take the following steps to obtain high-quality actuarial services for their public retirement plans: 1) identify the actuarial services required; 2) establish selection criteria; 3) develop a clear and concise request for proposals (RFP); 4) determine, to the degree possible, the level of indepen

GFOA recommends that program and service performance measures be developed and used as an important component of long term strategic planning and decision making which should be linked to governmental budgeting. Performance measures should:

GFOA recommends that governments incorporate public participation efforts in planning, budgeting, and performance management results processes. GFOA also recommends that to ensure effective and well implemented public participation processes, governments include the following considerations in designing their efforts:

The purpose of public-sector performance management (shown throughout the commissions report) is to provide a systematic approach to managing performance through concepts, practices and processes that align governments efforts to achieve the best possible results for the public within available resources. Performance management emphasizes the

GFOA recommends that governments develop a formal grants policy. Further, GFOA recommends that such a policy address steps to take prior to applying for or accepting grants, and that the policy at minimum contain the following components:

GFOA recommends that jurisdictions considering new benefit tiers examine the following issues: A governments authority to revise its pension benefits, the overall goals it wants to accomplish by doing so, and the effect of such changes on the workforce; and the financial impacts resulting from changes to pension plan design, as well as the effe

A considerable number of Plans have not been filing proof of claim forms toparticipate in settlements in which they have eligible claims and, as a result, are forfeiting money.2 Therefore, GFOA recommends that every Public Pension Plan develop and adopt a policy setting forth procedures for monitoring and partic

GFOA recommends that the state or local government or other designated governing entity establish rules of governance for its post-retirement benefit systems that define the key elements necessary for trustees and other fiduciaries to fulfill their responsibilities, in accordance with fiduciary standards.

GFOA recommends that governments exercise extreme caution in considering DROP plans and that prior to approving such plans they conduct a structured decision-making process that includes, at minimum, the following steps:

GFOA recommends that governments exercise extreme caution if considering ERIs. Governments should take several actions prior to the decision to offer an ERI in terms of (1) goal-setting, (2) cost/benefit analysis, and (3) budgetary analysis. Governments should also develop an implementation plan.

GFOA recommends that every state and local government that offers defined benefit pensions and/or OPEB formally adopt a funding policy that provides reasonable assurance that the cost of those benefits will be funded in an equitable and sustainable manner.

Should a public sector employer choose to provide a defined benefit plan, GFOA recommends that pension administrators and finance professionals consider the following essential elements in their plan design:

Because actuarial information directly affects the funded level and sustainability of pension plans, the GFOA developed this new best practice to urge pension plan fiduciaries to take appropriate steps to ensure that all information provided to the actuary is accurate and up to date. The best practice also provides guidance on how to engage actuaries and additional services that finance officers should consider having the actuary perform.

GFOA recommends that government officials ensure that the costs of DB pensions and OPEB are properly measured and reported. Sustainability requires governments that sponsor or participate in DB pension plans, or that offer OPEB, to contribute the full amount of their actuarially determined contribution (ADC) each year.

GFOA recommends that public employers as plan sponsors work actively with the plan administrators to provide investment options and education to help employees who participate in defined contribution plans attain their income replacement goals in retirement.

Should an employer choose to provide a defined contribution (DC) plan as the primary retirement vehicle, GFOA recommends that retirement administrators and finance professionals include the following design elements:

GFOA recommends that plan sponsors make sure that DC plan costs are reasonable and appropriate, compared with plans of similar size, structure, and service levels, and that they provide plan participants with meaningful and accessible information about fees and expenses. These policies and practices should ensure that plan sponsors:

GFOA recommends that public plan sponsors make sure high-quality investment education is provided to defined contribution plan participants who are allowed to direct their investments. To accomplish this goal:

GFOA recommends that state and local governments exercise extreme caution when considering whether to offer a brokerage window option in conjunction with a defined contribution retirement plan. Such options should be offered only after:

GFOA recommends creating a qualified trust fund to prefund OPEB obligations. To ensure that the trust is established and administered properly, governments should consult qualified legal counsel and fully understand the following issues:

GFOA recommends that government officials ensure that the costs of DB pensions and OPEB are properly measured and reported. Sustainability requires governments that sponsor or participate in DB pension plans, or that offer OPEB, to contribute the full amount of their actuarially determined contribution (ADC) each year.

The Government Finance Officers Association (GFOA) recommends that state and local government employers that sponsor group health plans implement a process for reviewing federal health-care benefit requirements at least quarterly to ensure that they are aware of any newly issued or soon-to-be issued regulations.

The Government Finance Officers Association (GFOA) recommends that state and local government employers that sponsor group health plans implement a process for reviewing federal health-care benefit requirements at least quarterly to ensure that they are aware of any newly issued or soon-to-be issued regulations.

GFOA endorses the report developed jointly by the Association of Public Pension Fund Auditors and selected chief investment officers of public pension funds, entitled "Public Pension Systems: Statements of Key Investment Risks and Common Methods to Address those Risks." By reviewing this report, governing and managing fiduciaries responsible for

GFOA recommends that state and local entities establish and adhere to a formal investment policy governing assets in a deferred compensation plan, and that it be approved by the plan sponsor. Such a policy should be viewed as a long-term governing document.

GFOA recommends that state and local entities establish a formal pension investment policy that is approved by the governing board or trustee(s) of the pension plan. A pension investment policy should be viewed as a long-term governing document.

GFOA recommends that fiduciaries adhere to the following best practices regarding investments:

1. Pension fund fiduciaries should establish a written investment policy that lays out formal policies and procedures to regulate and monitor the systems investment program. The investment policy should:

A pension plan should first determine whether a commission recapture program will actually produce lower costs overall. If the pension plans board of trustees decides to have such a program, or if it is required by law, GFOA recommends the following guidelines for proper administration.

GFOA has consistently recommended that state and local governments exercise caution in their selection of investment advisers for pension plan assets. This is particularly important because the fiduciary responsibility for pension plan assets cannot be delegated to an investment adviser.

To minimize the impact of investment management fees on portfolio returns, the GFOA developed this best practice, which recommends that retirement systems, especially those that use alternative investment strategies, adopt an investment management fee policy that will allow the retirement system to negotiate the lowest competitive fee possible while looking out for the system's long-term earning potential. The best practice also provides recommendations to governments about strategies to reduce investment fees.

GFOA recommends that state and local governments take the following steps to obtain high-quality actuarial services for their public retirement plans: 1) identify the actuarial services required; 2) establish selection criteria; 3) develop a clear and concise request for proposals (RFP); 4) determine, to the degree possible, the level of indepen

GFOA recommends that issuers implement appropriate procedures when determining the level of information that needs to be disclosed about their pension funding obligations relative to their financial position.

GFOA recommends that state and local governments continue to improve electronic access to their services and information by other government entities and the public. When the identity of contact and/or the contents of the information received must be authenticated, the use of a secure form of electronic signatures is encouraged.

GFOA recommends that finance officers take an organizational-wide approach to using technology for capital program management. Use of appropriate technology that can be used by key participants in the process -- in finance, engineering, operations, overall management, and other areas can enhance collaboration and improve management of the capit

GFOA recommends that governments evaluate the benefits and costs of using lockbox services to determine if advantages can be gained in the areas of accuracy, cash flow, internal controls, and efficiency.

GFOA recommends that governments evaluate whether accepting payment cards as a payment option is reasonable and appropriate for the type of charges or fees being paid, and the level of customer service desired.

GFOA recommends that governments consider the use of a payment consolidation service to improve the efficiency of their collection process. A competitive process can be used to select a payment consolidation service provider.

The Government Finance Officers Association (GFOA) recommends that government treasury practitioners review the regulated banks, regulated and non-regulated bank partners, and non-bank companies that process, validate, transfer, disburse and hold on deposit cash and near cash assets and apply prudent due diligence throughout the life of the re

GFOA recommends that governments explore the use of purchasing cards to improve the efficiency of their purchasing procedures. A competitive process should be used to select a purchasing card provider.

The GFOA recommends that state and local governments restrict their use of mutual funds for cash management purposes exclusively to: (1) money market mutual funds that are invested in Treasury, federal government agency, or first tier categories and possess the highest ratings available from at least one nationally-recognized ratings agency and (2) short-term bond funds that receive the highest credit quality ratings and the lowest risk ratings available.

GFOA recommends the use of a written agreement with pledging requirements as protection for state or local government's deposits. GFOA encourages governmental entities to establish adequate and efficient administrative systems to monitor such pledged collateral, including state or locally administered collateral pledging or collateral pools.

GFOA recommends that state and local governments properly manage the risk in their portfolios to achieve their investment objectives and comply with their investment constraints. GFOA further recommends the use of diversification in a portfolio as an important strategy for managing risk.

GFOA makes the following specific recommendations to government investors in selecting securities dealers for their approved vendor list, managing the relationships with the broker/dealers, and conducting investment transactions with them:

The Government Finance Officers Association (GFOA) recommends that state and local governments develop an understanding of the risks inherent in investing bond proceeds and incorporate steps in their investment strategy for each fund to minimize these risks.

Because the investor may need to liquidate the purchased securities in the secondary market in the event the counterparty defaults on the repurchase agreement transaction, GFOA recommends that government entities establish a policy and procedure for monitoring the value of the purchased securities in a repo transactio to insure that it does not

State and local governments should comply with state statutes pertaining to investing public funds along with all investment policy parameters. Fixed income investing involves a certain level of market risk. Investors should be aware of their risk tolerance and confirm that the market risk they assume is within this tolerance level.

The Government Finance Officers Association recommends that government investors assess their investment portfolio for performance and risk by comparing the total return of the portfolio to carefully selected benchmarks.

GFOA recommends that if a government chooses to use CP in its investment portfolio, it cautions government investors to: 1) verify whether commercial paper is allowed under state statute and their investment policy and 2) determine whether they have the expertise to understand, evaluate and monitor commercial paper before deciding to include com

GFOA advises state and local government finance officers to exercise extreme caution in the use of derivatives and structured finance products. Governmental entities must learn about and understand the potential risks and rewards of derivative and structured products, before deciding if they should be used.

While investment strategies that include securities lending programs are not inherently risky when employed judiciously with appropriate precautions and controls, GFOA urges state and local government officials to exercise caution in their use of securities lending programs.